Friday, 19 July 2013

Neo-Liberalism & Bastard Keynesianism

Neo-liberalism differs from Classical Liberalism in that it has no class basis and therefore can be indifferent to the dilemmas of Classical Liberal Political Theory. In its Anglo-American incarnation, Coase's theorem justifies eliding issues of ownership while Game theory, as developed by Nash, Aumann, Shapley, Muth, Schelling etc, justifies dropping the notion that a particular class must have a certain dominant 'virtue' or 'drive' and thus it is important to conserve that virtue or drive by promoting a certain set of values.

In a sense, between '38 to '68, neo-liberalism could be considered a sibling of 'bastard Keynesianism' which cashed out as a type of Aggregate Demand Management which claimed to protect foolish Workers from the consequences of their own folly- i.e. their 'money illusion', leading to downward stickiness of nominal wages, which might price them out of the market- and prevent Mass Unemployment through 'hidden' Inflation. However, Trade Union leaders did not actually suffer from money illusion and, in fact, under conditions of over-full employment, were able to increase Labour's share of National Income by increasing real, not nominal, wages. This in turn meant that the beneficial ownership of Capital passed increasingly into Labour's hands but mediated through the Institutional Investor. The Managerial Capitalism of the 50's & 60's had certainly been influenced by the War economy- Japan is the best exemplar of this- and could work within an essentially Mercantilist 'Keynesian' model. However, from '68 onwards, Institutional investors (Pension funds, Insurance companies etc) sought higher returns by seeking to break the 'divorce between ownership and control' represented by Managerialism and to release value, hidden on Corporate Balance Sheets, through 'asset stripping' and predatory Mergers & Acquisitions. Merchant Banks gained power and wealth by intermediating this process and wrested control from the Retail side of the business, which in any case faced a disintermediation problem of its own because some big Corporations could raise funds more cheaply than the Clearing Banks could themselves. This created the Wagnerian climate wherein the Managerial Class, a dragon perched upon its horde of hidden gold, colluded in its own slaying by the uncouth Siegfrieds of the Chicago School.

From 78 to 2008, neo-liberals gloried in their divorce from 'bastard Keynesianism- especially because of the 'great Moderation' of the Business Cycle- indeed, they denied any marriage had occurred- but what we now see is that the true situation was like totally China Town- neo-Liberalism needs both alimony and child-support from that Bastard Keynesianism but our prim & proper Prof. Gardiner, as is befitting a Scholar of English Literature, is far too strait-laced to come out and tell us so.